Are Refiners Ready to Cry ‘Uncle’?

Pump price slide continues, oil prices shuffling

CAMARILLO, Calif. -- Gasoline goes where crude oil dictates, as a rule. But oil's price direction from here is not clear: Crude oil prices are meandering of late, and may or may not be hitting a bottom.

Gas Pumps

The two main light-grade benchmarks are moving, if undramatically, in opposite directions. With no major shifts in world supply or demand, crude oil prices appear moderately responsive to changes in dollar strength (the dollar fell since the Lundberg retail survey of Jan. 22, supporting price), futures contract expiration (Brent yes, WTI not yet) and perceived efforts to curb production (Russia nodding to OPEC pleas), giving hope to price hawks.

Among other specific trends affecting oil prices: China oil demand weakness is not acute enough to inspire a tidal wave of crashing oil prices, but upstream companies' job slashing and project down-scaling is not draconian enough to send oil prices soaring.

If oil prices do establish a bottom soon, then so will U.S. retail gasoline prices. The pump price slide may be arrested anyway, even if crude oil prices do not immediately jump. That is because U.S. refiners are suffering a gasoline margin squeeze.

While U.S. average retail margin on regular grade has been in a comparatively sweet spot, U.S. refiner margin on gasoline has been on the run, recently losing nearly 25 cents per gallon, according to the most recent Lundberg Survey of approximately 2,500 U.S. gas stations. The shrinkage has been steady and severe since mid-December. It is now the lowest it has been in a year.

Even fierce refining and retail competitors have to cry "uncle" at some point during a squeeze, and for American refiners the recent pressure is getting old. Their relief may equate to a moderate gasoline price rise.

Whether the rise is obvious in the retail price will depend on precisely what oil prices do, and what retailers in the aggregate do in response to a wholesale price bump.

Camarillo, Calif.-based Lundberg Survey Inc. is an independent market research company specializing in the U.S. petroleum marketing and related industries.

Click here for previous Lundberg Survey reports in CSP Daily News.

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